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It’s the Lease We Can Do: Bridging the Gap Between Store Retailers and Their Landlords

It’s the Lease We Can Do: Bridging the Gap Between Store Retailers and Their Landlords

The retail industry is being transformed as external market trends continue to disrupt the sector. While the benefits go to the customer, this coincidentally presents mall and shopping center landlords and their tenants with an existential question:

What does this mean for the future of brick-and-mortar shopping?

According to the FTI Consulting Retail Real Estate Beat survey in November, landlords and retailers are worlds apart on an answer. The survey shows that the two sides have very different industry perspectives: Landlords are apprehensive about the future as omnichannel penetrates deeper into the industry. Meanwhile, retailers seem to be embracing the shift to omnichannel and are looking to adapt with agility. 

Because of this perception gap, retailers and landlords are developing different tactics to attract shoppers into stores and boost revenues in the age of e-commerce. Retailers are looking for the flexibility to make significant, transformative changes to their brick-and-mortar store locations to meet customer demands. In contrast, landlords are far more concerned about the shift to online shopping and changing consumer preferences because their business model — leasing retail space — is directly threatened by online shopping.

Despite these differences, the FTI Consulting survey revealed several opportunities for both parties to gain valuable perspective into each other’s needs. By finding common ground, landlords and their retail tenants can mutually benefit and optimize the customer experience. Here are five ideas — based on survey results — to help landlords and their retailer tenants reach across the table to better understand each other’s points-of-view in the era of online shopping.

1. Discover each other’s concerns

Respondents were asked: “Which business and technology trends are expected to have the greatest impact on your tenants/your company over the next three years?”

What it means: Landlords are concerned about long term trends including the shift to online purchases and the new shopping behavior of millennials.  This view makes sense since landlords are prioritizing capital investments to attract customers and tenants over the next 10 to 20 years.  In the meantime, retailers are battling for survival and necessarily must focus on the immediate threat posed by competitive pricing.

2. Understand each other’s needs

Respondents were asked: “To what extent do retailers and landlords agree or strongly agree with the following statements regarding location and physical environment?”

What it means: It would seem retailers’ focus on personalized and tailored experiences, which suggests they are looking towards omnichannel for growth despite landlords' concerns. Yet, landlords have an untapped opportunity to participate in a personalized in-store experience that complements online shopping. Nevertheless, landlords’ and retailers’ differing perceptions regarding the number of shoppers in stores indicates that retailers are in denial about shifts in consumer behavior.

3. Establish where you align, and where you differ

Respondents were asked: “Which items were most important for your retail tenants/brick-and-mortar locations?” (Note: Applies to following two graphs.)

What it means: Landlords and their retailer tenants have like-minded top priorities for brick-and-mortar stores: location, design, and parking.

However, landlords seem to be overestimating the importance of these basics to their tenants while missing out on other strategies of interest to retailers:

What it means: Retailers’ interest in flexible store configuration and leases could be reflective of their goal to offer more personalized in-store shopping experiences. It could also be indicative of their hope to lean into the omnichannel for growth while offering more customized in-store amenities.

4. Discuss how you can best provide for one another

Respondents were asked: “Which qualities do your tenants/retailers value the most?”

What it means: There is a stark contrast in what landlords think their retailer tenants want, and what tenants actually want. For instance, retailers are focusing on omnichannel as the growth play and are far more interested in marketing support than landlords appreciate. Conversely, the wide gap between landlord and retailer perceptions on security suggests that tenants take that service for granted. 

5. Develop a plan for moving forward

Respondents (retailers only) were asked: “To what extent have you changed the following in your brick and mortar stores to meet new customer demands in the online era? What will you have changed in three years?”

What it means: Retailers have already begun taking steps towards adopting an omnichannel presence. Nearly half have already altered their store inventory management, and three-quarters plan to do so in three years. Some of their biggest concerns are return and shipping options, which will continue expanding to reflect changing customer expectations. Additionally, nearly half (44%) of retailers plan to improve price transparency and checkout in three years, and more than half (53%) will adjust store staffing levels.

Conclusion

Data pulled from the retailer's responses suggest tenants are preparing for an omnichannel future, while property owners are lagging behind. For these two parties to succeed in the era of online shopping, landlords must begin thinking more about the opportunities that the omnichannel presents for their tenants and less about the inherent risks. Only then will retailers and their landlords be able to provide for those who matter most: the customer.

Published March 2018

© Copyright 2018. The views expressed herein are those of the author(s) and not necessarily the views of FTI Consulting, Inc., its management, its subsidiaries, its affiliates, or its other professionals.

About The Authors


Cynthia A. Nelson
cynthia.nelson@fticonsulting.com
Senior Managing Director
Corporate Finance & Restructuring / Real Estate Solutions
FTI Consulting

Christa Hart
Christa.Hart@fticonsulting.com
Senior Managing Director
Corporate Finance & Restructuring / Retail and Consumer Products
FTI Consulting

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The views expressed in this article(s) are those of the author and not necessarily those of FTI Consulting, Inc., or its professionals.
©Copyright, FTI Consulting, Inc., 2012. All rights reserved.

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